Mastec Making Foray Into Latin America

COMPANY SPOTLIGHT - MASTEC INC.

May 21, 1995

Since taking over Burnup & Sims a year ago, Miami-based Mastec has shed unprofitable contracts, won major new customers like US West, sold off an 83-screen movie theater and entered five Latin American markets. Since September, Burnup investors have seen the value of their shares nearly quadruple from $2.75 to current levels of $10.87. The company plans to sell real estate to pay down debt and acquire new companies in the United States and Latin America.

INDUSTRY OVERVIEW

Mastec has based it future on winning a share of the $110 billion that U.S. telephone, cable television and wireless communications companies are expected to spend by the end of the decade. The money will be spent upgrading and building networks for an array of interactive services, such as home shopping, banking and video on demand. The company is gambling that foreign companies that have acquired state-owned telephone monopolies in Latin America will also invest billions to upgrade the continent's antiquated infrastructure.

CORPORATE HISTORY

Mastec is the successor to the Church & Tower Group of Miami and Burnup & Sims of Plantation. Church & Tower was acquired in 1971 by Jorge Mas Canosa, a Cuban exile better known for his leadership of the virulently anti-Castro Cuban-American National Foundation. Church & Tower thrived in its first 30 years by landing contracts to install lines for Southern Bell in Dade and Broward counties. It is now run by Mas' son, Jorge Mas Jr.

Nick A. Caporella agreed to sell his controlling stake in Burnup to the Mas family early last year. The Mases renamed the company Mastec, but several subsidiaries operate under the Burnup & Sims name.

For the year ended Dec. 31, the company earned $7.5 million, or 47 cents per share, compared with a loss of $9.3 million for the previous fiscal year, which ended April 30, 1993. Sales rose slightly to $141 million.

OUTLOOK

Mas Jr.'s strategy has been to sell Burnup's non-core assets and invest the money buying other utility contractors, expanding abroad and eventually operating its own telecommunications network. In the first quarter, for instance, Mastec sold the 83-screen Floyd Theaters chain for $11.5 million and entered a joint venture with Peoples Telephone (Nasdaq: PTEL) to pursue contracts to install and operate public telephone networks in Latin America and the Caribbean. In August, Mastec expects to bid on federal licenses set aside for minority firms to build and operate wireless networks.

SOURCES: Compiled by Business Writer Charles Lunan from interviews and Sun-Sentinel research

Analyst's view

"From this point forward we believe that MASX will grow earnings 20 percent on average for the next three to five years. The growth will come primarily from three areas: 1) solid growth from its core telecom and CATV construction business; 2) fold-in acquisitions as it expands its geographic presence in the above-mentioned businesses; and 3) the expansion into Central and South America market as both a construction company and a telecom and cable operator.

"We are currently estimating 1995 EPS at $.85 per share, a significant increase from the $.47 reported in 1994; a large part of this gain is from the successful integration of Burnup & Sims. For 1996, we are carrying a preliminary EPS estimate of $1.05, a 23 percent increase versus 1995."

- Michael Rosen, Lazard Freres & Co.

Q & A

Although only 32, Jorge Mas Jr. has spent his last 11 years as chief executive of his family's contracting firm and Mastec. The eldest of controversial Cuban exile leader Jorge Mas Canosa's three sons, Mas has tried to distance himself from exile politics. He displays no Cuban flags in his eigth-floor office, which can be reached only by an elevator key held by an armed guard on the first floor. He recently was interviewed by Business Writer Charles Lunan.

Q.

What is your presence in Latin America and what is the outlook for your businesses there in the wake of Mexico's financial crisis?

A.

We are very optimistic about Latin America, not only in our core operations of installing and maintaining the outside plant, but also in operating networks. We are now in Argentina, Ecuador, El Salvador, Guatemala Paraguay and Venezuela. We are not in Mexico, but I think what happened with Mexico in January with the peso provides tremendous buying opportunities. The correction that happened there was a correction of financial markets and is not related to consumers or the growth of investment.

Q.

You've already sold the 83-screen Floyd Theater chain, but what are your plans for the real estate underlying those theaters and the rest of the land you inherited from Burnup & Sims?

A.

We are in the process of selling our portfolio real estate and converting a nonproductive asset into cash. The problem with real estate is you cannot dispose of it quickly without burning it and I don't want to burn it and get 40 cents on the dollar when, if I do it in an orderly fashion, I can earn more. We've given ourselves 24 months. It's mostly raw land and it's a lot of land. We have parcels of up to 700 acres. We have entered into agreements with brokers to market it and I also hired a real estate professional in-house. I don't want to be in the real estate business. I want to be in telecommunications.

Q.

How will you divide your time in the coming year?

A.

I will spend about 60 percent of my time on domestic day-to-day business, about 30 percent on acquiring business in Latin America and 10 percent with the Wall Street investment community.